Show Me the Value

Given the prevailing economic conditions it is hardly surprising Hayward notes that "value has been front of mind this year, as explained loudly by [Commonwealth Bank CEO] David Murray.

"There have been a lot of misconceptions about IT value: that it was some sort of magic bullet; that because CRM was installed you would become a customer-facing organisation. Technology is just a small part of the very large change required in the corporation to get the benefits of IT," Hayward says. "What we find is that corporations are not spending enough on change management, on leadership, on training."

It is a persistent lament. Hayward blames the past focus on IT "of itself" and also the fashion to have the outcomes of IT programs expressed in raw financial terms, which never fully account for the total implications of an IT program. "For example, people talk in terms of crude ROI. It's useful but it doesn't do a particularly good job of canvassing the function, the speed, the choice, the convenience, the quality or the diversity that the IT program might afford the business and its clients," he says.

Crude ROI figures also tend to ignore that fact that many of the benefits of IT often flow straight through to customers rather than translating into profits or competitive edge. Many of the IT systems installed in intensely competitive and international environments simply allow companies to stay in business. These systems might not deliver much to the bottom line, but without them there would not be any bottom line, Hayward says. He offers the example of banks, which must invest in ATMs and the payments network. "They probably don't contribute to profitability," Hayward says, "but all the banks have them so they are a cost of doing business."

Hayward believes that there has also been a tendency on the part of economists examining the IT sector and its contribution to the broader economy to focus in on raw numbers, for example searching out IT's contribution to gross domestic product nation by nation. Hayward argues against this approach, explaining that GDP is an output-based measure developed for the industrial rather than the information era, and hence poor at identifying and measuring the intangible benefits of IT which flow through to the broader economy. What Gartner expects is that increasingly sophisticated businesses will start to abandon similarly crude ROI-type measures, which track internal efficiency, and move towards analysing how IT systems improve external agility and therefore deliver value.

A report headlined The New Focus of IT Value: Externalising Agile Business released by Gartner in July notes that "by 2007, capability for externally focused agility and transformation will generate at least 50 per cent of sustainable competitive advantage for large and mid-sized enterprises. For example banks that previously concentrated on branch closures to minimise cost now use a wider range of access methods to reach more customers and produce loyalty."

Measuring IT's contribution to this connected economy will be the challenge for CIOs who can innately see the value of more outward-focused IT systems, but still have to get sign-off from the board who are used to justifying decisions by pointing to the bottom line.

Companies that fail to successfully shift their focus to outward-facing systems may find themselves unable to compete in the future with rivals who have, Gartner warns. It represents a major challenge for CIOs and Gartner claims that "best practice IS leaders who are driving this transformation tend to be politically active in their enterprise and engage with business issues . . . Connected economy opportunities and technology capabilities are driving a change in enterprise strategy toward external relationships and agility. Leaders and planners of IS organisations and enterprises should begin to redirect strategy, architecture, competencies, investment and leadership accordingly.

"Failure to do so will jeopardise enterprise competitiveness and damage careers," the report says.